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AXA Framlington UK Select Opportunities
AXA Framlington UK Select Opportunities invests in UK companies, with approximately one third of the portfolio in small, medium, and larger-sized companies apiece. Manager Chris St John has a long history managing UK equities and has relatively recently stepped up to take on this strategy. His wide mandate gives him the opportunity to find some under-researched opportunities from across the market.
Our opinion
Chris St John represents continuity on this fund since the retirement of veteran fund manager Nigel Thomas in 2019. Chris has stuck with the successful process and uses the experience he has built up from his tenure on the Elite Rated AXA Framlington UK Mid Cap fund. The process has been tried and tested throughout multiple market cycles and has been shown to outperform over the long-term, through superior analysis and strong corporate access.
Company description
AXA Investment Managers (AXA IM) is the asset management arm of the eponymous French insurance giant. Its equity franchises are split into two brands: Framlington Equities and Rosenberg Equities. The latter focuses on systemic investment (using quant-based modelling), while the former is run by active fund managers. AXA Framlington Equities was awarded the Elite Provider for Equities rating in 2015, 2016, 2018 and 2021.
Fund manager
Chris St John joined AXA Investment Management in 2005. In 2008 he was appointed to run the UK smaller companies fund before he took charge of the Elite Rated AXA Framlington UK Mid Cap fund from its inception in 2011. He was made deputy of AXA UK Select Opportunities fund in 2013, ahead of taking over from veteran manager Nigel Thomas when he retired. Prior to joining AXA, Chris worked at F&C Asset Management where he also generated a good track record in small and mid-cap investing. He is a Chartered Accountant and graduated from Durham University with an honours degree in Philosophy and Psychology.
Investment process
The core philosophy at the heart of AXA Framlington UK Select Opportunities’ approach is growth at a reasonable price (GARP). This entails looking for those firms exhibiting organic growth, that have pricing power and high barriers to entry, are tapped into dominant market themes and are run by strong management teams, with sensible capital structures. These companies will be identified through a repeatable and pragmatic process.
There are three stages to identifying potential investments. The first is an overview looking at the key global macroeconomic factors and themes that should drive growth going forward, such as ageing populations, automation and for climate friendly technologies.
The second stage is company analysis. The thematic overview in stage one gives Chris an indication as to where the companies benefiting from growth tailwinds are likely to be, but the analysis helps define and evaluate them, and to see how much they are set to benefit from the trends.
Chris will then meet company management. This is a very important part of the process. It allows him and his team to test their analysis and interpretation against the people who are set to implement it.
Having established the investment case for a company, Chris then moves on to valuations. While he wants to find growth, he doesn’t want to overpay for it.
This work then culminates in stage three: portfolio construction. The overriding goal is to maximise the growth potential, but not at the expense of risk. Stage two helps identify the best growth opportunities, and risk management helps position them.
AXA Framlington UK Select Opportunities will consist of 60-90 names with portfolio turnover usually below 40%.
The multi-cap approach will typically lead to an overweight position in smaller companies, and away from the large caps. The fund can also invest in AIM stocks, which will lead to many different holdings than some in the peer group. The fund’s strategy will give the portfolio some natural biases. These will include a tilt towards industrials, healthcare, and technology, as well as underweights in basic materials and financials. The ESG restrictions will also influence positioning.
ESG
ESG - Limited
As a firm, AXA has company-wide investment restrictions based on specific ESG risks – an approach that has been very forward thinking. It monitors and excludes multiple industries for all assets under management (e.g.: controversial weapons, palm oil and soft commodities). It has also recently enforced and strengthened its stance on coal-based power production with limits and exclusions on revenue, power generation, expansion, and mining development. Beyond this, Chris does not believe selling a good investment to improve the ESG score of the fund is good stewardship. Instead, he will use engagement and voting - often pro-actively - before issues arise. The corporate and initial thematic approach will lead to a tilt towards a more sustainable profile, though this is not a stated goal of the fund.
Risk
Stock selection should be the primarily return driver of the fund. The fund tends to invest in growth companies, meaning it will perform better relatively when this style is in favour with the market, and may underperform when it is out of favour. Parameters are monitored by an independent risk team that will also monitor volatility at both an individual holding and portfolio level.
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